Business Context and Reporting Period
Hertz Global Holdings, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2022. Hertz Corporation is its principal operating subsidiary, and its results comprise nearly all of Hertz Global’s operating results. The company rents vehicles under the Hertz, Dollar and Thrifty brands and sells used vehicles. It emerged from Chapter 11 in June 2021. Results are seasonal, with demand typically rising in spring and summer.
Financial Performance and Key Metrics
Unless noted, amounts are in U.S. dollars and millions. Hertz Global figures are shown where they differ from operating subsidiary Hertz.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1,810 | $1,289 |
| Net income attributable to Hertz Global | $426 | $190 |
| Diluted earnings per share | $0.82 | $1.21 |
| Adjusted Corporate EBITDA | $614 | $2 |
| Operating cash flow | $621 | $200 |
| Cash and cash equivalents at quarter-end | $1,521 | $2,258 at Dec. 31, 2021 |
| Restricted cash at quarter-end | $601 | $393 at Dec. 31, 2021 |
| Total debt at quarter-end | $12,082 | $10,907 at Dec. 31, 2021 |
- Revenue increased 40%. Net income attributable to Hertz Global was about 23.5% of revenue, versus about 14.7% a year earlier; the comparison is affected by unusual items in both periods.
- Hertz Corporation reported net income of $376 million, compared with $189 million in Q1 2021. Its operating cash flow was also $621 million.
- Cash and restricted cash together totaled $2,122 million at quarter-end, down $529 million during the quarter. Corporate liquidity, excluding unused vehicle-debt commitments, was $2,658 million: $1,520 million of Hertz cash plus $1,138 million available under the First Lien revolving credit facility.
- Vehicle debt was $9,098 million and non-vehicle debt was $2,984 million. Substantially all revenue-earning vehicles and certain related assets are pledged to secured lenders.
- Vehicle expenditures were $2,985 million and disposal proceeds were $1,471 million, or $1,514 million of net vehicle investment. Operating cash flow less investing cash outflow was negative $920 million.
- Net vehicle depreciation and lease charges were a benefit of $59 million, including $387 million of gains on vehicle disposals, compared with a $243 million expense in Q1 2021.
Material Changes Versus the Prior Comparable Period
- Revenue rose primarily on higher rental volume and pricing as travel restrictions eased. Americas RAC revenue increased 61% to $1,558 million; International RAC revenue increased 36% to $252 million.
- Transaction days increased 26% in Americas RAC and 15% in International RAC. Total revenue per transaction day rose 28% and 26%, respectively. International vehicle utilization fell to 68% from 75%; Americas utilization was 76% in both periods.
- Adjusted EBITDA increased to $614 million from $2 million. Americas RAC contributed $641 million versus $26 million; International RAC contributed $27 million versus a loss of $8 million. The metric is non-GAAP and excludes specified items.
- Q1 2021 included a $392 million gain on the Donlen sale and $42 million of reorganization charges; Donlen is no longer in the current-period business. Q1 2022 included a $50 million gain from revaluing Hertz Global’s Public Warrants and $44 million of unrealized gains on interest-rate instruments.
- Depreciation and disposal gains materially benefited Q1 2022 results amid strong used-vehicle residual values and longer fleet holding periods. The company also cited semiconductor-related new-vehicle supply constraints.
- Hertz Global repurchased 34.96 million shares for $722 million during the quarter at an average $20.65 per share. By April 21, cumulative repurchases under the $2.0 billion authorization totaled $1.2 billion.
Outlook, Management Commentary, Risks and Contingencies
- Management stated that operating cash, vehicle disposal proceeds, liquidity facilities and potential capital-markets refinancing should be sufficient to fund operations and obligations for the next 12 months. The filing provides no specific earnings or revenue guidance.
- Management attributed stronger travel demand to the easing of COVID-19 restrictions, while noting continuing uncertainty about the pandemic. The company’s strategy includes fleet electrification, shared mobility, connected cars and direct-to-consumer vehicle sales.
- Key risks include inflation and labor or supply-chain costs, semiconductor and other vehicle-supply constraints, used-vehicle residual values, travel-demand changes, competition, fleet financing availability, and the Russia-Ukraine conflict’s potential effects on supply chains, costs and European demand.
- The company reported compliance with its First Lien financial and other covenants at March 31, 2022. It had $585 million of outstanding standby letters of credit; none had been drawn.
- A bankruptcy-court adversary proceeding seeks redemption premiums on certain former unsecured notes. Following dismissal of some claims, claims for premiums on the 2026 and 2028 notes remained. The original complaint asserted up to approximately $271.7 million plus interest; the company disputes liability, and the eventual outcome and amount, if any, are uncertain.
- Self-insured liabilities were $468 million. The company cautioned that estimates are uncertain and that adverse outcomes in legal, tax, environmental or other matters could exceed recorded accruals.
- The company held approximately $670 million of gross capital-loss carryforwards related to a European restructuring, with a full valuation allowance. The IRS accepted a request to consider whether the loss qualifies as ordinary; a favorable outcome could permit some or all of the allowance to be released.
Important Facts for Investors to Verify
- Whether the strong pricing, travel demand and used-vehicle values persist, and how vehicle availability, fleet holding periods and residual values affect future depreciation and disposal gains.
- The sustainability and comparability of reported earnings and Adjusted EBITDA, given the Donlen-sale gain in 2021 and warrant, derivative and vehicle-disposal effects in 2022.
- Debt maturities, borrowing-base availability and covenant headroom, while accounting for vehicle assets pledged to secured lenders and the decline in cash during the quarter.
- Repurchase pace and remaining authorization, including the effect of share buybacks and warrant dilution on per-share results.
- The resolution and potential financial exposure of the remaining noteholder litigation, self-insurance claims and tax proceeding.